Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition, changes in financial condition, plan of operations and results of operations should be read in conjunction with (i) our audited consolidated financial statements as at December 31, 2020 and December 31, 2019 and (ii) the section entitled “Business”, included in this annual report. The discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.
Company Overview
We are a clinical-stage immuno-oncology company specializing in the development and commercialization of novel T cell-based immunotherapies and innovative peptide-based vaccines for the treatment of hematological malignancies and solid tumor indications. We developed our lead product candidates from our MultiTAA-specific T cell technology, which is based on the selective expansion of non-engineered, tumor-specific T cells that recognize tumor associated antigens, or TAAs, which are tumor targets, and then kill tumor cells expressing those targets. These T cells are designed to recognize multiple tumor targets to produce broad spectrum anti-tumor activity. We are advancing two pipelines of product candidates as part of our MultiTAA-specific T cell program: the autologous T cells for the treatment of lymphoma, multiple myeloma, or MM, and selected solid tumors and the allogeneic T cells for the treatment of acute myeloid leukemia, or AML, and acute lymphoblastic leukemia, or ALL. Because we do not genetically engineer the MultiTAA-specific T cell therapies, we believe that our product candidates are easier and less expensive to manufacture, have lower toxicities than current engineered chimeric antigen receptor, or CAR-T, and T cell receptor-based therapies and may provide patients with meaningful clinical benefit. We are also developing innovative peptide-based immunotherapeutic vaccines for the treatment of metastatic solid tumors.
We are pursuing post-transplant AML as the lead indication for our first company-sponsored MultiTAA-specific T cell program. In April 2020, the FDA granted orphan drug designation to MT-401 for the treatment of AML after receiving an allogeneic stem cell transplant. The MultiTAA-specific T cell therapy has been well tolerated in an ongoing Phase 1 clinical trial in AML and myelodysplastic syndrome, or MDS, conducted by our strategic partner Baylor College of Medicine, or BCM. As reported in a recent publication by Lulla et al., 11 of the 17 patients in the adjuvant disease setting dosed with the MultiTAA-specific T cell therapy after receiving an allogeneic hematopoietic stem cell transplant, or HSCT, never relapsed [median leukemia-free survival, or LFS, not reached at a median follow-up of 1.9 years], with 11 of 15 patients remaining alive (estimated two-year overall survival of 77%) at a median follow-up of 1.9 years post-infusion, which compares favorably with HSCT outcomes for risk-matched AML/MDS patients post-HSCT [median LFS of nine to 15 months and two-year survival probability of 42%]. Additionally, eight patients were treated for active disease that was resistant to salvage therapy post-HSCT with a median of five prior lines of therapy (range: four to 10). One of the eight patients crossed over from the adjuvant group, while two patients enrolled twice, but all three patients had active AML that failed another line of salvage therapy after their first MultiTAA-specific T cell infusion. Two of the eight patients achieved objective responses, with one complete response and one partial response, with six patients continuing with stable disease.
We submitted an investigational new drug, or IND, application to the United States Food and Drug Administration, or the FDA, to initiate a Phase 2 clinical trial of MultiTAA-specific T cell therapy, which we refer to as MT-401 (zedenoleucel), in post-allogeneic HSCT patients with AML in both the adjuvant and active disease setting. The dose administered in this multicenter trial is the approximate flat dose equivalent of the current maximum tolerated dose from the ongoing Phase 1 trial. In the adjuvant setting, patients will be randomized to either MultiTAA-specific T cell therapy at approximately 90 days post-transplant versus standard of care observation, while the active disease patients will receive MT-401 following relapse post-transplant as part of a single-arm group. We expect to complete the safety lead-in portion of the trial in the first half of 2021. We anticipate that we will initiate the remainder of the Phase 2 trial in the third quarter of 2021 and complete enrollment of 20 patients in that phase of the trial in the fourth quarter of 2021 in order to report results from the active disease arm of the trial in the first quarter of 2022. We expect to begin manufacturing MT-401 for the Phase 2 trial at our cGMP manufacturing facility in the third quarter of 2021.
We reported interim data for an ongoing Phase 1/2 clinical trial of the MultiTAA-specific T cell therapy for the treatment of pancreatic adenocarcinoma being conducted by BCM. In this trial, we have observed a clinical benefit correlated with the post-infusion detection of tumor-reactive T cells in patient peripheral blood and within tumor biopsy samples in patients in the tumor-resection arm of the trial. These T cells exhibited activity against both targeted antigens and non-targeted TAAs, indicating induction of antigen spreading. To date, we have not observed any cytokine release syndrome or neurotoxicity in this trial.
75
Table of Contents
We are also evaluating the MultiTAA-specific T cell therapies in a Phase 2 clinical trial for the treatment of breast cancer and in Phase 1 clinical trials for the treatment of ALL, lymphoma, MM and sarcoma, all of which are being conducted by BCM. As of December 2020, the MultiTAA-specific T cell therapies have been generally well tolerated by all of the patients enrolled in clinical trials in hematological and solid tumor indications with no incidents of cytokine release syndrome or neurotoxicity, which are frequently associated with CAR-T therapies. Our ongoing clinical trials may be also affected by the COVID-19 pandemic. Based on our observations in clinical trials in AML, pancreatic cancer, lymphoma, ALL and MM, we believe that the MultiTAA-specific T cell therapies have the potential to mediate a meaningful anti-tumor effect, as well as significant in vivo expansion of T cells. We may initiate additional Phase 2 clinical trials investigating other indications in addition to our planned Phase 2 trial in post-transplant AML patients.
Financial Overview
Critical Accounting Policies
The consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described under Note 3 in the Notes to Consolidated Financial Statements in this Form 10-K.
Research and Development Expenses
To date, our research and development expenses have related primarily to the development of our clinical platform and the identification and development of our product candidates. Clinical and research and development expenses consist of expenses incurred in performing research and development activities, cost of our clinical trials, including compensation, share-based compensation expense and benefits for research and development employees and consultants, facilities expenses, overhead expenses, cost of supplies, manufacturing expenses, fees paid to third parties and other outside expenses.
Clinical costs are expensed as incurred. Costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
● per patient clinical trial costs;
● the number of patients that participate in the clinical trials;
● the number of sites included in the clinical trials;
● the length of time required to enroll eligible patients;
● the number of doses that patients receive;
● the drop-out or discontinuation rates of patients;
● potential additional safety monitoring or other studies requested by regulatory agencies;
● the duration of patient follow-up;
● the efficacy and safety profile of the product candidates; and
● the ability to successfully manufacture patient doses.
76
Table of Contents
In addition, the potential for success of each product candidate will depend on numerous factors, including clinical trial outcomes, acceptance by regulatory authorities, competition, manufacturing capability and commercial viability. We determine which programs to pursue and how much to fund each program in response to ongoing scientific assessments, competitive developments, clinical trial results, as well as an assessment of each product candidate's commercial potential. We anticipate our research and development costs will continue to increase over the next several years due to increased spending on the clinical development and manufacturing of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in executive, finance, accounting, business development, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, insurance costs and professional fees for consultancy, accounting, audit and investor relations.
We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities, and the potential commercialization of our product candidates.
Income Taxes
We did not recognize any income tax expense for the years ended December 31, 2020 and 2019.
Other Income (Expense)
Other income (expense), net consists of interest income and change in fair value of warrant liabilities.
Results of Operations For the Years Ended December 31, 2020 and 2019
The following table summarizes the results of our operations (rounded to the thousand except for per share amounts) for the years ended December 31, 2020 and 2019, together with the changes to those items:
For the Years Ended
December 31,
2020
2019
Change
Revenues:
Grant income
$
467,000
$
213,000
$
254,000
119
%
Total revenues
467,000
213,000
254,000
119
%
Operating expenses:
Research and development
18,881,000
12,765,000
6,116,000
48
%
General and administrative
10,472,000
9,977,000
495,000
5
%
Total operating expenses
29,353,000
22,742,000
6,611,000
29
%
Loss from operations
(28,886,000)
(22,529,000)
(6,357,000)
28
%
Other income (expense):
Change in fair value of warrant liabilities
31,000
18,000
13,000
72
%
Interest income
149,000
1,083,000
(934,000)
(86)
%
Net loss
$
(28,706,000)
$
(21,428,000)
$
(7,278,000)
34
%
Net loss per share, basic and diluted
$
(0.61)
$
(0.47)
$
(0.14)
30
%
Weighted average number of common shares outstanding
47,040,000
45,588,000
1,452,000
3
%
77
Table of Contents
Revenue
We did not generate any revenue during the years ended December 31, 2020 and 2019, respectively, from the sales or licensing of our product candidates. During the year ended December 31, 2020, we recognized $0.5 million of revenue associated with a grant awarded to Mayo Foundation from the US Department of Defense for the Phase 2 clinical trial of TPIV200 which Mayo paid to us for clinical supplies manufactured by us and provided for the clinical trial funded by the grant. We refer to this grant as the Mayo Grant. During the year ended December 31, 2019, we recognized $0.2 million of grant income from the Mayo Grant.
Operating Expenses
Operating expenses incurred during the fiscal year ended December 31, 2020 were $29.4 million compared to $22.7 million in the prior year. Significant changes and expenditures in operating expenses are outlined as follows:
Research and Development Expense
Research and development expenses increased by 48% to $18.9 million for the year ended December 31, 2020, compared to $12.8 million for the year ended December 31, 2019.
The increase of $6.1 million in 2020 was primarily attributable to the following:
o increase of $2.9 million in headcount-related expenses as we increased the number of research and development personnel,
o increase of $2.3 million in process development expenses,
o increase of $1.7 million in sponsored research and consulting expenses from BCM agreements,
o increase of $0.6 million in rent expenses,
o decrease of $1.3 million in our peptide vaccine clinical trial expenses due to the stages of ongoing clinical trials and the decreased number of active patients in such trials , and
o decrease of $0.1 million of other expenses.
Included in research and development expenses, are expenses related to agreements with BCM.
In November 2018 and February 2020, we entered in Sponsored Research Agreements with BCM, which provided for the conduct of research for us by credentialed personnel at BCM’s Center for Cell and Gene Therapy. During the years ended December 31, 2020 and 2019, we incurred $0.3 million and $0.1 million of expenses related to these agreements, respectively.
In September 2019, we entered in a Clinical Supply Agreement with BCM, which provided for BCM to provide to us multi tumor antigen specific products. During the year ended December 31, 2020, we incurred $0.6 million related to this agreement.
In October 2019, we entered in a Workforce Grant Agreement with BCM, which provided for BCM to provide to us manpower costs of projects for manufacturing, quality control testing and validation run activities. During the year ended December 31, 2020, we incurred $0.6 million related to this agreement.
In August 2020, we entered in a Clinical Trial Agreement with BCM, which provided for BCM to provide to us investigator-initiated research studies. During the year ended December 31, 2020, we incurred $0.3 million related to this agreement.
78
Table of Contents
General and Administrative Expenses
General and administrative expenses increased by 5% to $10.5 million for the year ended December 31, 2020 from $10.0 million during the prior period. The increase in general and administrative expenses of $0.5 million was mainly comprised of the following:
o increase of $1.0 million in headcount-related expenses as we increased the number of administrative personnel,
o increase of $0.2 million in rent expenses,
o increase of $0.4 million in insurance expenses,
o decrease of $0.3 million in other general and administrative expenses, and
o decrease of $0.8 million in legal and professional fees.
Other Income (Expense)
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities for the year ended December 31, 2020 was $31,000 as compared to $18,000 for the fiscal year ended December 31, 2019.
Interest Income
Interest income was $0.1 million and $1.1 million for the years ended December 31, 2020 and 2019, respectively, and was attributable to interest income relating to funds that are held in U.S. Treasury notes and U.S. government agency-backed securities. As part of the reaction to the COVID-19 pandemic, the Federal Reserve cut rates in mid-March 2020 to a range of 0.0%-0.25%. As such, we recorded lower interest income during the year ended December 31, 2020.
Net Loss
The increase in our net loss during the year ended December 31, 2020 compared to the year ended December 31, 2019 was due to the continued expansion of our research and development activities, increased expenses relating to future clinical trials, and the overall growth of our corporate infrastructure. We anticipate that we will continue to incur net losses in the future as we continue to invest in research and development activities, including clinical development of our MultiTAA T cell product candidates.
Liquidity and Capital Resources
We have not generated any revenues from the sales or licensing of our product candidates since inception and only have limited revenue associated with grants. We have financed our operations primarily through public and private offerings of our stock and debt including warrants and the exercise thereof.
The following table sets forth our cash and cash equivalents and working capital as of December 31, 2020 and 2019:
December 31,
December 31,
2020
2019
Cash and cash equivalents
$
21,352,000
$
43,904,000
Working capital
$
18,009,000
$
43,494,000
79
Table of Contents
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2020 and 2019:
For the Years Ended
December 31,
2020
2019
Net Cash provided by (used in):
Operating activities
$
(18,860,000)
$
(18,284,000)
Investing activities
(10,428,000)
(375,000)
Financing activities
6,736,000
816,000
Net decrease in cash and cash equivalents
$
(22,552,000)
$
(17,843,000)
Operating Activities
Net cash used in operating activities during the year ended December 31, 2020 was $18.9 million. The use of cash primarily related to our net loss of $28.7 million, in addition to the effect of changes in asset and liability accounts, including an increase in prepaid expenses and deposits of $0.5 million, an increase in accounts payable and accrued liabilities of $4.3 million and an increase in lease liabilities of $0.2 million.
Net cash used in operating activities during the year ended December 31, 2019 was $18.3 million. The use of cash primarily related to our net loss of $21.4 million, in addition to the effect of changes in asset and liability accounts, including an increase in prepaid expenses and deposits of $1.4 million, a decrease in accounts payable and accrued liabilities of $1.0 million, a decrease in interest receivable of $52,000 and a net increase in lease liabilities of $0.2 million.
Investing Activities
Net cash used in investing activities was $10.4 million and $0.4 million for the purchase of property and equipment during the years ended December 31, 2020 and 2019, respectively. The increase relates to $6.8 million in construction in progress towards the new modular cleanrooms and the buildout of our manufacturing facility, an additional $2.2 million in laboratory equipment, $0.6 million in computers and equipment, $0.5 million in furniture and fixtures and $0.3 million in leasehold improvements at the new research facility.
Financing Activities
Net cash provided by financing activities was $6.7 million during the year ended December 31, 2020, mainly due to the sale of 4,113,440 shares of stock under the Purchase Agreement with Aspire Capital that provided proceeds to the Company of approximately $6.2 million, along with $0.6 million of proceeds from the exercise of stock warrants. Net cash provided by financing activities was $0.8 million during the year ended December 31, 2019, due to the exercise of stock warrants and stock options.
Future Capital Requirements
To date, we have not generated any revenues from the commercial sale of approved drug products, and we do not expect to generate substantial revenue for at least the next several years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised. We do not know when, or if, we will generate any revenue from our product candidates, and we do not expect to generate significant revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of and seek marketing approval for our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
80
Table of Contents
As of December 31, 2020, we had working capital of $18.0 million, compared to working capital of $43.5 million as of December 31, 2019. Based on our revised clinical and research and development plans and our revised timing expectations related to the progress of our programs, we expect that our cash and cash equivalents as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2021. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Furthermore, our operating plan may change, and we may need additional funds sooner than planned in order to meet operational needs and capital requirements for product development and commercialization. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, as we:
● initiate or continue clinical trials of our product candidates;
● continue the research and development of our product candidates and seek to discover additional product candidates; seek regulatory approvals for our product candidates if they successfully complete clinical trials;
● establish sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any product candidates that may receive regulatory approval;
● evaluate strategic transactions we may undertake; and
● enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates and, if a product candidate is approved, our commercialization efforts.
Because all of our product candidates are in the early stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when, we may achieve profitability. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements.
During fiscal 2020, we entered into agreements to buildout a manufacturing facility, to lease a research lab and to expand our corporate headquarters in Houston, Texas.
We plan to continue to fund our operations and capital funding needs through equity and/or debt financing. We may also consider new collaborations or selectively partner our technology. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our existing stockholders’ common stock. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us. We may also be required to pay damages or have liabilities associated with litigation or other legal proceedings involving our company.
In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term liquidity due to the COVID-19 pandemic. However, we will continue to assess the effect of the pandemic on our operations. The extent to which the COVID-19 pandemic will impact our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, the duration and effect of business disruptions and the short-term effects and ultimate effectiveness of the travel restrictions, quarantines, social distancing requirements and business closures in the United States and other countries to contain and treat the disease. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
81
Table of Contents
Aspire Common Stock Purchase Agreement
In February 2020, we entered into a common stock purchase agreement, or the Purchase Agreement, with Aspire Capital Fund, LLC, or Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $30.0 million of shares of our common stock over the 30-month term of the Purchase Agreement. As of December 31, 2020, Aspire Capital had purchased 4,113,440 shares under the Purchase Agreement, providing aggregate proceeds to the Company of approximately $6.2 million. In consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, the Company issued to Aspire Capital 345,357 shares of the Company’s common stock.
The Purchase Agreement provides that we and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing sale price of our common stock is less than $0.25. There are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of sales of our common stock to Aspire Capital. Aspire Capital has no right to require any sales by us but is obligated to make purchases from us as directed by us on future funding, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. The Purchase Agreement may be terminated by us at any time, at its discretion, without any cost to us. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the Purchase Agreement. We expect to use any proceeds under the Purchase Agreement for working capital and general corporate purposes.
The Purchase Agreement provides that the number of shares that may be sold pursuant to the Purchase Agreement will be limited to 9,232,814 shares, including the Commitment Shares, or the Exchange Cap, which represents 19.99% of our outstanding shares of common stock as of the date of the Purchase Agreement, unless stockholder approval is obtained to issue more than 19.99%. This limitation will not apply if, at any time the Exchange Cap is reached and at all times thereafter, the average price paid for all shares issued under the Purchase Agreement is equal to or greater than $2.41, which was the closing price of our shares on The Nasdaq Global Market immediately preceding the execution of the Purchase Agreement. We are not required or permitted to issue any shares of common stock under the Purchase Agreement if such issuance would breach our obligations under the rules or regulations of The Nasdaq Global Market.
Going Concern
We have no sources of revenue to provide incoming cash flows to sustain our future operations. As outlined above, our ability to pursue our planned business activities is dependent upon our successful efforts to raise additional capital.
While these factors raise substantial doubt regarding our ability to continue as a going concern. Our consolidated financial statements have been prepared on a going concern basis, which implies that we will continue to realize our assets and discharge our liabilities in the normal course of business. Our financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
82
Table of Contents
Tax Loss and Credit Carryforwards
As of December 31, 2020, we have approximately $97.2 million of federal and $39.0 million of state net operating loss carryforwards that may be available to offset future taxable income, if any. The federal net operating loss carryforwards of $41.6 million, if not utilized, will expire between 2029 and 2037. The federal net operating loss carryforwards of $55.6 million generated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely. The state net operating loss carryforwards of $21.9 million, if not utilized, will begin to expire in 2035. The state net operating loss carryforwards of $17.1 million generated in 2018 and thereafter are subject to an 80% limitation on taxable income, do not expire and will carry forward indefinitely. Any change in ownership greater than 50% under Section 382 of the Internal Revenue Code places significant annual limitations on the use of such net operating loss carryforwards.
At December 31, 2020 and 2019, we recorded a 100% valuation allowance against our deferred tax assets of approximately $29.7 million and $24.6 million, respectively, as our management believes it is uncertain that they will be fully realized. If we determine in the future that we will be able to realize all or a portion of our net operating loss carryforwards, an adjustment to valuation allowance against our deferred tax assets would increase net income in the period in which we make such a determination.
Inflation
Inflation affects the cost of raw materials, goods and services that we use. In recent years, inflation has been modest. However, fluctuations in energy costs and commodity prices can affect the cost of all raw materials and components. The competitive environment somewhat limits our ability to recover higher costs resulting from inflation by raising prices. Although we cannot precisely determine the effects of inflation on our business, it is management’s belief that the effects on future revenues and operating results will not be significant. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs and other costs arising from or related to government-imposed regulations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 8. FINANCIAL STATEMENTS
The Financial Statements are incorporated herein by reference to pages F-1 to F-21 at the end of this report and the supplementary data is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
We have had no changes in, or disagreements with our principal independent accountants.
83
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.